Q: My question is in regard of the new financing that GSY just took:
(-- goeasy Ltd. (TSX: GSY) (“goeasy” or the “Company”), one of Canada’s leading non-prime consumer lenders, is pleased to announce that it closed its previously announced offering of US$550 million aggregate principal amount of senior unsecured notes due 2028 (the “Notes”). As announced on November 14, 2023, in connection with the offering of the Notes, goeasy also entered into a currency swap agreement (the “Currency Swap”) to reduce the Canadian dollar equivalent cost of borrowing on the Notes to 8.79% per annum. Before giving effect to the Currency Swap, the coupon on the Notes is 9.25% per annum. goeasy will use the proceeds from the sale of the Notes to fund the redemption of all of its outstanding 5.375% senior unsecured notes due 2024 (the “2024 Notes”).)
It seems to me that the cost of borrowing almost doubles that of the notes due for redemption. The amount is also considerable. Is it material to the forecast estimated EPS for 2024?
GoEasy is on a tear these days and I wonder if I just add to an already 4% position size or wait and let go. Buy more on weakness or buy now or stay put?
Thanks in advance and I know position size is personnal but GoEasy will continue to grow hence position size is still very reasonnable.
(-- goeasy Ltd. (TSX: GSY) (“goeasy” or the “Company”), one of Canada’s leading non-prime consumer lenders, is pleased to announce that it closed its previously announced offering of US$550 million aggregate principal amount of senior unsecured notes due 2028 (the “Notes”). As announced on November 14, 2023, in connection with the offering of the Notes, goeasy also entered into a currency swap agreement (the “Currency Swap”) to reduce the Canadian dollar equivalent cost of borrowing on the Notes to 8.79% per annum. Before giving effect to the Currency Swap, the coupon on the Notes is 9.25% per annum. goeasy will use the proceeds from the sale of the Notes to fund the redemption of all of its outstanding 5.375% senior unsecured notes due 2024 (the “2024 Notes”).)
It seems to me that the cost of borrowing almost doubles that of the notes due for redemption. The amount is also considerable. Is it material to the forecast estimated EPS for 2024?
GoEasy is on a tear these days and I wonder if I just add to an already 4% position size or wait and let go. Buy more on weakness or buy now or stay put?
Thanks in advance and I know position size is personnal but GoEasy will continue to grow hence position size is still very reasonnable.
5i Research Answer:
The cost of the financing was higher than most expected, but is a reflection of the back up in rates and some economic concerns when the deal was first announced (nearly a month ago). GSY might have got a better rate if it had waited. But while it costs more, keep in mind GSY is also charging more for loans these days (up to prescribed limits). We would not expect the interest difference just on these notes to be material overall as long as it can maintain credit spreads and low default rates (which have been trending down). We would be comfortable buying today. We like the growth, recent momentum, and valuation and in a rate pivot we think the stock continues to do well.